Washington ? Companies working on Iraq reconstruction have been accused of padding their profits through an insurance scam, leading to a criminal probe and hurried changes in the way many contracts are handled by the U.S. Army, according to internal military documents obtained by The Associated Press.

The investigation of two companies located in Tikrit – Sakar al-Fahal and al-Jubori – prompted the Army Corps of Engineers to scour its records for evidence of fraud by other contractors hired with billions of U.S. dollars to help rebuild Iraqi infrastructure devastated by the war, the documents reveal.

Whether Sakar al-Fahal and al-Jubori were paid for insurance they never obtained is a matter now being examined by the Army Criminal Investigation Command. The documents don’t state the total amounts in question.

Congress is looking into the problem, too. Concerned that the U.S. is footing the bill for phony or overstated insurance payments, the House Oversight and Government Reform Committee is to hold a hearing today with witnesses from the Corps of Engineers, the Pentagon and the State Department.

The session will examine allegations of abuse and waste in the procurement of insurance for federal contracts, says committee chairman Henry Waxman, D-Calif.

All contractors doing work overseas for the Corps of Engineers or any other U.S. government agency are required to insure their civilian employees, many of whom are handling dangerous jobs in hostile areas. The medical and disability insurance is called Defense Base Act coverage, a reference to the federal law mandating it.

Contractors get the coverage from private insurance companies, then they’re reimbursed for what they spend. The insurance costs are included in the price of the contract and passed on to American taxpayers.

The two companies under investigation have completed or are currently working on contracts worth close to $30 million, according to correspondence among Corps of Engineers officials. Three recent awards totaling $19.5 million carried an initial payroll of $410,000, the documents indicate. The insurance costs would have been about $30,000.

Although those figures may pale when compared with the more than $46 billion the United States has provided for relief and reconstruction of Iraq since April 2003, the problem could well be much bigger than just a few Iraqi companies.

As such, the Corps of Engineers is beginning a labor-intensive effort to seek proof of insurance from the hundreds of contractors it does business with.